System, method, and apparatus for the investment of a debenture credit

ABSTRACT

A method and system that produces a single financial product including a security arrangement, legal agreement(s) and technical management facility that aggregates the values of present or future financial cash flows from financial arrangements or securities offered by multiple entities such that the assets and liabilities are combined through agreements and other such arrangements to produce an enhanced portfolio value of the financial products.

This application is a continuation-in-part patent application ofco-pending U.S. application Ser. No. 09/253,880 filed Feb. 22, 1999.

BACKGROUND OF THE INVENTION

1. Field of the Invention

The present invention relates to a system for a single financial packagethat may include securities, arrangements, legal agreements andtechnical management facility that facilitates execution and aggregatesfinancial cash flows from financial arrangements or securities offeredby multiple entities such that the assets and liabilities are eitherdirectly or indirectly altered, collateralized, borrowed-against and/orredirected, and combined to produce an enhanced portfolio value of thefinancial products. The preferred embodiment of the invention relates toan electronic management facility that aggregates, reports and analyzesthe performance of the package of assets, such as investments, andliabilities, such as loan obligations. The same management facility willprovide significant operational and distribution capacity through abrowser based internet application that brings providers of financialproducts together into a synthesized financial package.

2. Description of the Prior Art

Recently, there has been a proliferation of financial products thatprovide greater flexibility and more customized solutions to bothborrowers and investors.

Additionally there is an increasing sophistication in financial cashmanagement. This sophistication has generated a proliferation ofprocesses surrounding a comprehensive risk management of assets andliabilities. Sophisticated risk management systems have evolved infinancial firms as a means to manage their in-house financial positions.Further, financial firms are beginning to provide similar services totheir retail customers for management of in-house products.

The various means of implementing, coordinating, supervising, analyzingand reporting on an array of investments in an array of accounts withina financial institution are evolving as a service and used as a vehicleto encourage the purchase of multiple financial service products fromthe institution. While such means also may provide a level of efficientcash flow management, it is currently not possible for a retail customerto manage a combination of asset and liability products from multipleentities in such a personal risk management system. The many choices ofwholly separate financial products can not be transacted and managed ina comprehensive asset/liability management product. Additionally, thereis a possibility to unlock value tied-up in implicit assets andliabilities within traditional investment products.

In the current institutional marketplace, the traditional investmentmethod is as follows:

-   -   1. The Homeowner has liability account (mortgage lender) with a        lending institution and pays monthly interest and principal        payments to the lender.    -   2. The Lender sells the loans through federal agency loan buying        programs, to Federal Agencies such as Fannie Mae.    -   3. The Agency repackages the cash flow streams into securitized        pools and sells them to institutional investors.    -   4. The Agencies are left with default exposure on the purchased        loans.    -   5. The Agencies aggregate their default exposure and create        default securities and sells them to other investors.

While the traditional approach creates some value for investors, thereremains untapped value in the securities as the principal payments ofthe aggregated loans are paid to the lending institutions.

Adkins, U.S. Pat. No. 5,852,811 issued Dec. 22, 1998, discloses acomputer-embodied method for handling both the creation of a mortgagetogether with investments that are handled by the same lending andinvesting institution. Adkins, U.S. Pat. No. 5,644,727 issued Jul. 1,1997, is directed to a computer based system for operating a pluralityof client financial accounts; Adkins, U.S. Pat. No. 4,953,085 issuedAug. 28, 1990, is directed towards a account and subaccount allocationby the disclosed method.

However, in light of the above-mentioned systems and methods thereremains a need for a many-to-many match between mortgage lendinginstitutions and asset management institutions, and a computer-processedproduct that is a combination of two existing products; a securitizedloan (such as a home mortgage), an asset management package (such as amutual fund) and a mechanism to generate and utilize implicit valuethrough explicit asset and liability cash-flows which would allowfinancial institutions to maintain and benefit from their existinggood-will and brand-recognition.

In addition, there is a need for a method/system for creating more valueout of traditional real estate investment vehicles and securities.

SUMMARY OF THE INVENTION

The present invention is a method and system that produces a singlefinancial package including a security arrangement, legal agreement(s)and technical management facility that aggregates the values of presentor future financial cash flows from financial arrangements or securitiesoffered by multiple entities such that the assets and liabilities arecombined through agreements and other such arrangements to produce anenhanced portfolio value of the financial products.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 shows a block diagram of the preferred embodiment of theinvention;

FIG. 2 shows the many to many matching of products that are combined toproduce the invention;

FIG. 3 shows the preferred embodiment of the present that utilizes thespecial trust or investment vehicle;

FIG. 4 shows an example of a performance model;

FIG. 5 shows a sample hierarchy of screens for the menu choice system.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

The combination of asset and liability management in a single productenhances the prospects of net borrowing at less-expensive values.Similarly, the combination of asset and liability management in a singleproduct can enhance the leverage of an investor. Thus, a user who isboth an investor and a borrower can enhance the total efficiency ofhis/her position by combining separate financial products in acomprehensive package. While the efficiency of cash-flow management canbe achieved through a comprehensive asset/liability package, furtherenhanced efficiency can be achieved through the combination of productsfrom specialists' financial entities into this single package.

Principally, the asset management entity and the lending entity willseparately administer their respective products and additionally, willcollaterally agree to manage the cash flows through the combinedasset/liability package in accordance with the participation provisionsor legal agreements. The borrowing agreement with the participatinglender will stand as a legal arrangement consistent with the provisionsof conventional agreements. The lending agreement will be priced andmaintained at observable market levels. Similarly, the asset managementproducts will be administered by the asset management entitiesconsistent with separate management agreements. The performance of suchproducts will be simultaneously administered in the combined hybridpackage. The participation agreement will link the separate productsinto a single package.

Some individual asset or liability products contain implicit assetsand/or liabilities. For example, a loan obligation requires that theprincipal reduction payments are at regular intervals at a negotiatedinterest rate. This principal reduction reduces the liability of theborrower. As this liability is reduced, less interest is paid to thelending institution. Therefore, every reduction in principal can beviewed as an investment against a future obligation to pay interest.This investment portion of the overall liability product represents animplicit asset investment vehicle.

The present invention provides for the re-direction of this implicitasset within a liability obligation such that the implicit asset will beeliminated through either another implicit or explicit liability(contained within the agreement of the product) with the cash-flows fromthe liability funding, being directed into an explicit asset vehicle.For example, the principal payments on a loan are not effectively usedto reduce the net liability of a borrower, but rather refunded and usedto invest elsewhere. In the case of providing enhanced efficiency toliability holders, one of the novel aspects of the present invention isthat the single product of the present invention, through variousmethods converts an implicit asset imbedded in the liability obligationinto an explicit asset to be managed alongside the liability as anexplicit (and presumably more efficient) portfolio of both assets andliabilities.

Similarly, buying an asset investment product requires that a lump sumof money be used to purchase the asset investment vehicle. To make thispayment, cash must ultimately be debited from an account. Therefore, thepurchaser implicitly borrows from another asset account. Whether theasset borrowed against is a savings account paying interest, a marginaccount requiring interest, or another investment forgoing some rate ofreturn, it is clear that a cost/liability is associated with thepurchase of an asset investment. The cost of the purchase of aninvestment is currently not explicitly accounted for within investmentvehicles. The current invention provides a structure whereby an investorcan purchase assets with implied assets contained in the liability of aloan (principal amortization schedule), whereby the principal paymentson a loan are effectively directed into asset investments rather thanused to pay down the net liability obligation of the borrower. In otherwords, the asset investment product is structured such that the fundingof the investment is included in the product. Advantages of thisstructure include the possibility that an investor can leverage aliability to purchase assets and/or that an investor can possibly fundan asset purchase more efficiently than through other conventionalmeans.

The hybrid financial product is structured such that an individual canenter into a conventional lending agreement with a traditional cash-flowstructure. An amendment to the lending agreement would provide theindividual the right and/or obligation to redirect the scheduledprincipal amortization cash flows from the lender. The principal cashflows would be passed-through the management facility onto an assetmanagement partner. The asset management returns will be monitored andreported in the management facility and combined with the loanobligation to create a complete asset/liability performance model.

The facility may aggregate low level information about the cash flowsfrom the lending entity and returns on the investment vehicles on acustomer level. The accounts may be held in trust. The investmentreturns may be received directly or indirectly from the asset manager ofrecord. The liability cash flows will be generated from the lendingpartners' records. The two assets of records will be joined on theinvestor level. Loan equity analysis and reports will document theprincipal accumulation in the combined package. Analyses contrastingaccelerated home equity performance versus home equity accumulation witha conventional principal paydown schedule will be generated.Additionally, an asset/liability allocation model or performance modelmay graphically represent the current total wealth picture versesinteractive assumptions on back-tested and projected performance underconventional and redirected principal schedules.

There are several ways in which to structure arrangements that wouldutilize the cash-flows from implicit assets and liabilities. The presentinvention is the method for transferring implicit cash-flows within anindividual's portfolio into explicit cash-flows by combining assets andliabilities in a single structure that can be measured and managed andredirected by the individual. Some of the agreements used to createthese structures are Separately administered Agreements.

The entities may maintain separate agreements with the customer whileall of the parties agree to have one of many types of agreements towhich all parties have certain obligations to the aggregated product tobe differentiated by the specific manner by which the cash-flows aretransferred.

Single integrated agreement are agreements in which all parties agree tohave their legal obligations with regard to their respective products tobe transferred to the aggregating entity.

Within the general structure of either the separate customer legalrelationships or a single customer legal relationship there exists manytypes of arrangements that the cash-flows can pass through. In additionto others, a particular cash-flow structure may utilize any or all ofthe following arrangements or agreements;

-   -   1. An Umbrella Agreement: A legal document that defines the        cash-flows for all parties.    -   2. A Management Facility Agreement/Arrangement:        Agreement/Arrangement that allows a service entity to handle all        cash-flows of all the parties and is the record manager. The        Management Facility is computer-based in the preferred        embodiment.    -   3. A Custody/Trust: A regulated entity that houses the financial        products and has fiduciary responsibilities for the security of        the cash-flows.    -   4. A Performance Security: A SEC regulated security that pays on        a determined formula that references the underlying instruments.    -   5. A Customer Level Account: A third party customer account        balance which, is used to determine buying power of the        aggregated assets and liabilities.

Utilizing any of the above-mentioned arrangements, a cash-flow event canbe created in many ways. Each arrangement will embed costs or marketfrictions would make each mechanism more or less feasible. Examples ofways to create a cash-flow event are:

-   -   1. A Synthetic Loan: The lending institution may agree to loan        back the principal payments to the borrower who in turn directs        such flows to the asset management entity.    -   2. A Pass through Agreement: The agreement with the lender would        allow the borrower to effectively send principal payments        through the aggregation entity to the asset management entity.        The agreement would include some provision for the return of        principal to the lender.    -   3. Collateral: The asset balance reflected in one of many places        can be used as collateral from which asset investments can be        purchased. The lender can accept future interest payments with        pledged collateral whereby the borrower can fund the purchase of        asset investments. Other lenders can fund the purchase of assets        with pledged collateral. The asset balance may or may not occur        from the built-up equity in the liability.    -   4. Notional Agreement: Any of the entities may agree to exchange        cash-flows based on a predetermined formula. For example, the        aggregating entity may agree to pay the customer the difference        between their accumulated asset investment returns and an        interest rate multiplied by the outstanding loan balance        multiplied by a day count.

As stated above, there are numerous ways in which to create a cash-flowevent and the examples mentioned above, are not meant in any way tolimit the scope of the invention.

Systems and methods which, fulfill the above-mentioned needs and provideother beneficial features in accordance with the present invention aredescribed below with reference to the figures. Those skilled in the artwill readily appreciate that the description given herein with respectto the figures is for explanatory purposes only and is not intended inany way to limit the scope of the invention. In addition, commonreference numbers are used throughout the figures to represent commonelements.

Referring now to the figures, FIG. 1 shows a system block diagram of apreferred embodiment of the present invention. The product calledNet-Worth Mortgage is produced as follows. The Homeowner 1, pays monthlyprincipal payments 5, and interest 6, to Lender 2, who accepts principaland interest payments from Homeowner 1, through a legal agreement.Through a second agreement, the principal payments in the form of asynthetic loan 7, are directed back to the control of the homeowner 1,who utilizes a financial management system 4, to direct the principalinto an asset management vehicle 3.

The Net Worth Mortgage Management Facility 4, is the central operatingaccount through which all transactions between the Lender 2, and AssetManager 3, are implemented, coordinated, controlled, analyzed andreported to the client. Through the Net Worth account the client isprovided with client reports updated on a real time basis, portfoliomanagement and financial services, including personal financial planningservices.

FIG. 2 shows the many-to-many match of the preferred embodiment. The NetWorth mortgage 13, is a financial product that is a combination of assetand liability accounts. Reference numbers 10-12 shows examples of assetmanagers such as Fidelity 10, Charles Schwab 11, and Vanguard 12.Reference numbers 16-18 show examples of liability accounts i.e.mortgage lenders, such as Chase 16, Country Wide 17 and Citibank 18.Another embodiment of the present invention contains an Asset managementtool, 15 for example Quicken, Personal Wealth, or Microsoft Money, andprovision to allow quotes for mortgage loans 14, for example, E-Loan,Best-Quote or Loan Shop.

FIG. 3 is an example of another embodiment of the present invention thatshows how the value of the financial product is enhanced. Homeowners 1pay interest and principal to mortgage lenders 2. Lenders 2, then sellsthe loans through specified federal agency loan buying programs, toFederal Agency 19, for example, Fannie Mae. The Agency 19 3 repackagesthe cash flow streams into securitized pools and sells them toinstitutional investors 20. The Agency 19 is left with default exposureon the specified purchased loans. The Agency 19 aggregates the specifieddefault exposure and creates default securities. The specified defaultsecurities will then be placed into a special purpose vehicle 21identified herein as the Financial Asset Securitization Investment Trust(FASIT). As the principal payments of the loans are made, the netpresent value of the FASIT increases because the default exposure to theloans decreases. The FASIT is structured such that cash flows will passfrom an investor through the FASIT as values for the securitiesincrease. As the principal payments are passed through to thelender/agency/security/trust, the cash flows are passed to acustomer-directed Asset Manager 3.

The client is able to choose from a plurality of asset managers and froma plurality of mortgage lenders. In the preferred embodiment, the clientcan choose from a plurality of asset managers through a menu choicesystem, which also allows the client to view performance data. Forexample, the menu choice system of the present invention a shown in FIG.5, would allow a client to view pertinent information such as,Projections of earnings 27, Agreements 28, Execute 29 and Management 30.

Performance data can consist of a comparison between the NetWorthmortgage and asset performance verses a conventional mortgage. Anexample of performance data is shown in FIG. 4.

Those skilled in the art will readily appreciate that the descriptiongiven herein with respect to the figures is for explanatory purposesonly and is not intended in any way to limit the scope of the invention.

1.-25. (canceled)
 26. A method for the management and satisfaction of acustomer's financial liability comprising the steps of: generating cashflows through a default security, wherein said default security iscreated by a third party agent and is based upon said customer'sliability and one or more other parties liabilities; generating a returnon investment from an investment of said cash flows in an assetmanagement account, wherein (i) a portion of said cash flows areattributable to said liability of said customer, (ii) said investment ofsaid portion of said cash flows are directed by said customer, and (iii)a portion of said return on investment attributable to said portion ofsaid cash flows directed by said customer may be used by said customerto satisfy said liability.
 27. The method of claim 26, wherein saidliability is a mortgage requiring regular payments of principal andinterest.
 28. The method of claim 26, wherein a portion of said returnon investment is allocated to said customer and at least one of a lenderof a liability vehicle based upon said liability, said third partyagent, and an asset management account manager of said asset managementaccount, in accordance with an allocation agreement between two or moreof said customer, said lender, said third party agent, and said assetmanagement account manager.
 29. A system for the satisfaction of a firstcustomer's financial liability or liabilities comprising: an initialliability of said first customer comprising an initial liability value,wherein said initial liability value comprises an origination value anda residual value; a pool of liabilities comprising said initialliability of said first customer and initial liabilities of othercustomers, wherein (i) said other initial liabilities are of a typesimilar to that of said initial liability of said first customer, (ii)each initial liability of each said other customer comprises an initialliability value, wherein each said initial liability value comprises anorigination value and a residual value, (iii) said initial liabilitiesin said pool are collectively managed, (iv) at least a portion of saidresidual value of each said initial liability in said pool may be passedto an investor, and (v) at least a portion of said residual value ofeach said initial liability in said pool is associated with saidcustomer contributing said initial liability to said pool; a third partyfinancial instrument through which at least a portion of said residualvalue of each liability in said pool is monetized by a secondaryliability to create a residual calculated value of said initialliability of each customer, wherein said residual calculated value ofsaid initial liability is associated with said customer's initialliability; and one or more assets purchased at the direction and for thebenefit of said customer with said customer's residual calculated valueof said customer's initial liability, wherein said one or more assetsgenerate a return on investment, wherein said return on investment maybe used to satisfy said initial liability or other liabilities incurredby said customer.
 30. The system of claim 29, wherein said initialliability is a mortgage.
 31. The system of claim 30, wherein saidmortgage further comprises regular payments of principal and interest.32. The system of claim 30, wherein said origination value of saidmortgage comprises the right to receive principal and interest paymentsassociated with said mortgage.
 33. The system of claim 30, wherein saidresidual value of said mortgage comprises a risk of default associatedwith said mortgage.
 34. The system of claim 33, wherein said third partyfinancial instrument is a default security.
 35. The system of claim 29,wherein said return on investment comprises interest.
 36. An apparatusfor the satisfaction of a first customer's financial liability orliabilities comprising: a financial management facility; wherein saidfacility tracks an initial liability value of said first customer,wherein said initial liability comprises an origination value and aresidual value, and a residual calculated value of said initialliability created by a secondary liability which monetizes said residualvalue of said initial liability in a third party financial instrument.37. The apparatus of claim 36, wherein one or more assets are purchasedwith said customer's residual calculated value of said customer'sinitial liability, wherein said one or more assets generate a return oninvestment, and wherein said return on investment may be used to satisfysaid initial liability or other liabilities incurred by said customer.38. The apparatus of claim 36, wherein said secondary liabilitymonetizes said residual value of said initial liability by aggregatingsaid initial liability of said first customer with initial liabilitiesof other customers in a pool of liabilities.
 39. The apparatus of claim38, wherein (i) said initial liabilities of said other customers are ofa type similar to that of said initial liability of said first customer,(ii) each initial liability of each said other customer comprises aninitial liability value, wherein each said initial liability valuecomprises an origination value and a residual value, (iii) said initialliabilities in said pool are collectively managed, (iv) at least aportion of said residual value of each said initial liability in saidpool may be passed to an investor, and (v) at least a portion of saidresidual value of each said initial liability in said pool is associatedwith said customer contributing said initial liability to said pool. 40.The system of claim 36, wherein said initial liability is a mortgage.41. The system of claim 40, wherein said mortgage further comprisesregular payments of principal and interest.
 42. The system of claim 40,wherein said origination value of said mortgage comprises the right toreceive principal and interest payments associated with said mortgage.43. The system of claim 40, wherein said residual value of said mortgagecomprises a risk of default associated with said mortgage.
 44. Thesystem of claim 36, wherein said third party financial instrument is adefault security.
 45. The system of claim 36, wherein said return oninvestment comprises interest.